Advertising giant WPP hit by weaker demand from tech clients

WPP experienced more “difficult” trading conditions last year as technology clients cut spending.

Technology sector growth has slowed amid higher interest rates, while spending has also been diverted toward the development of artificial intelligence.

As technology companies laid off employees and reduced their investment plans, the advertising industry suffered a knock-on effect.

WPP, the world’s largest advertising agency, saw its comparable revenue decline 2.7 percent in North America, the group’s largest territory in terms of sales.

Its total turnover still rose 3.2 percent to £14.5 billion last year thanks in part to excellent demand from consumer goods packaging companies and healthy double-digit growth in India during the second half of the period.

In the UK, like-for-like revenue grew 5.6 percent to £2.6 billion thanks to strong results from Ogilvy and its GroupM media planning and buying business.

However, WPP won much less new business with $4.5 billion in revenue, down from $5.9 billion in 2022, as widespread economic pressures caused many companies to reduce their advertising budgets.

Pre-tax profit plunged 70.1 per cent to £346m due to property impairment and “accelerated amortization of intangible assets” related to the creation of VML.

Mark Read, chief executive of WPP, said: “While 2023 was more challenging than we expected due to cuts in technology client spending, we delivered a resilient performance during the year.

“We are optimistic about the strategic opportunities ahead and confident that we will be able to achieve accelerated and increasingly profitable growth in the medium term.”

To help achieve its goals, WPP is increasing spending on artificial intelligence, with around £250 million planned for this year alone.

The FTSE 100 firm also aims to exploit its “deep partnerships” with US tech giants such as Google, Microsoft and Nvidia and is investing in its AI-powered WPP Open platform.

Sophie Lund-Yates, senior equity analyst at Hargreaves Lansdown, said: “There will be some concern over when exactly these significant investments will bear significant fruit, but it is a step in the right direction.”

‘Ultimately, WPP is an economic bellwether, which will struggle to really prosper until corporate finances relax a little more. The version of WPP waiting for that moment is in a much better position to capture demand.”

WPP shares They fell 2.8 per cent to 758.2p on Thursday morning and have fallen by around a quarter in the last 12 months.